Wednesday, February 25, 2009

First Solar Tumbles After Earnings

As I posted yesterday, I was watching First Solar's earnings closely when they reported after the bell.

Earnings for the quarter ended were strong, but FSLR's future outlook was even bleaker than I had imagined. Unfortunately I was not short the stock, but anyone that was short or held puts fared very well - shares fell $30, nearly 22%.

FSLR's executives had many troubling things to say - the economy is tough, the solar business is tough, and they expect it to get tougher in the near-term. According to the company, up to 15% of 2009 shipments could be at risk of "customer default." To make up for waning corporate credit, FSLR is even financing or taking stakes in projects (rather than simply selling panels) which complicates their business model and casts even greater doubt on their future prospects.

So being right really didn't positively effect me, but I enjoy seeing rationality return to one of the only market segments where euphoric expectations still reigned king.

Tuesday, February 24, 2009

First Solar Reporting After the Bell

I have published previous articles about shorting First Solar starting in April 2008 as the stock hovered near $300/share. At that time, general economic, stock market, and solar business prospects were much better than they were now.

Thanks to weaknesses unique to FSLR (and now, general market weakness) my short worked out very well - I shorted in the high $200's and rode it down past $150 before covering. I haven't had any position in the stock for a while.

FSLR reports earnings after the bell today, and i have not initiated any position prior to the announcement (nor do I plan to initiate any position after). However, I love me some schadenfreude... I mean, First Solar is still way overvalued compared to its fundamentals. The P/E is sky high, margins are slipping and growth is slowing. Competition is tough. Though there are some green energy incentives in the stimulus bill, it may only make up for what would have been an astronimical drop by real businesses and consumers facing tougher spending decisions.

Who knows? They might beat and raise, if some footnote in the bill specifies that FSLR's panels will be placed on every police station in the US. But based on the overall economic malaise, I expect a "we expect a tough year due to the economy" type of commentary during the conference call.

Analysts, on average, expect earnings next year of $7/share. That's a PE of about 20 at today's market price, which is rich considering the decline of most tech high-flyers. Unless FSLR's executives forecast above that consensus, my gut tells me that shares will more likely fall than rise.

Whether shares pop or drop tomorrow, I'd stay away. There is a glut of solar capacity in a world that has shifted focus back towards cheap energy instead of green-at-all-costs energy.

Ski Wax
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Monday, February 23, 2009

TCLP Follow Up

So clearly my calls expired worthless, as TCLP failed to rally on Friday as I had hoped.

However, the stock is still a conservative yet wonderful (nearly guaranteed 10% yield is looking tastier by the day) choice for an investor in today's increasingly-disappointing market.

Ski Wax
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Thursday, February 19, 2009

First Options Trade in a Months: TCLP Calls

I have followed TCLP (Transcontinental Pipelines), a pipeline trust, for a very long time now.

Under normal market conditions it was a very stable stock (as it is in a widows-and-orphans industry), but during the last six months the stock has been effected by increased volitility as the general stock market became more unpredictable.

Below is an approximately six-month chart. As the candles show, there have been numerous days when the stock has risen (or fallen) by greater than $1.

TCLP reports earnings tomorrow morning, and I'm speculating that the stable numbers will reassure antsy investors. Obviously this trade is more lottery-ticket than science, but I was willing to throw down a little money and take a chance.

I was able to pick up at-the-money $25 calls for $.30 per contract this afternoon. If earnings please investors, a $1 or $2 pop will pay off nicely.

(As an aside, I have followed TCLP for a long time because of its very high dividend - the shares currently yield about 11%. The 5 year average dividend payment is only 6.6% [according to Yahoo Finance], which might point to share appreciation in the future. I think that TCLP is a great conservative long-term investment regardless of the outcome of my options trade tomorrow.)

Ski Wax
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Friday, February 13, 2009

Final Thoughts on Stimulus Bill

I hope that the bloated, pork-heavy stimulus bill doesn't pass today and has to be re-written. The final version contains over 1,000 pages.

An example of an element that I have an issue with is the inclusion of a tax credit for firms who employ "disconnected youth." I pulled the definition of that term from the bill.

The term ‘disconnected youth’ means any individual who is certified by the designated
local agency—

‘‘(I) as having attained age 16 but not age 25 on the hiring date,
‘‘(II) as not regularly attending any secondary, technical, or post-secondary school during the 6-month period preceding the hiring date,
‘‘(III) as not regularly employed during such 6-month period, and
‘‘(IV) as not readily employable by reason of lacking a sufficient number of basic skills.’’.

As to why employers would want to employ workers lacking the skills that have thus far kept them from holding a job? I don't know.

Ski Wax
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Wednesday, February 11, 2009

Thoughts on Amazon and Kindle 2

Amazon shocked the street recently as its holiday quarter numbers held up as the wider retail industry suffered through a horrible holiday season. Analysts and investors digested Amazon's reasonably strong performance favorably and tried to assess why they are succeeding while others are struggling.

As that euphoria was fading, Amazon kept its buzz strong by announcing the Kindle 2, Amazon's new and improved ebook viewer. The Kindle 2's release was anticipated after Amazon allowed the first Kindle to go out of stock during the holiday shopping season; the new Kindle will start shipping on February 24th. Many retail investors seem excited about the Kindle's prospects and some equate it with the early iPod. I think that such hopes are misguided.

The Kindle 2 is a very good product, and Amazon taking the time to upgrade it was a smart move. The new kindle is lighter, slimmer, sleeker, holds more books, can "speak" any text on the screen, has a sharper e-ink display, and still utilizes the free-forever cellular networks to quickly deliver content. The device retails for a hefty $359, but the yuppies that the Kindle is marketed to should be willing to pony up that price for the newest, coolest device.

Amazon is estimated to have sold about 500,000 of the first-edition Kindles. The Kindle 2 should surely break those numbers (rather quickly), and sales of the Kindle should help fluff Amazon's bottom line for years to come. But expectations of a game-changing device (as iPod-comparers imply) will lead to disappointment.

The iPod revolutionized how consumers accessed media. The iPod allowed consumers to carry their entire music library in their pockets for the first time ever, and there were no alternative devices at that time that performed any sort of similar function. It took a while for iPod sales to really start accelerating, and sales eventually boomed as internet speeds and music downloads (both legal and illegal) increased exponentially.

The Kindle 2 is the sleekest ebook devise on the market, but the market is much more limited than that which the iPod filled, and Kindle's market will only shrink. Virtually everyone has a few hundred songs that they'd like to be able to listen to at any time; a much, much smaller pool of people have a few hundred books they'd want to be able to read at any time. (I'm aware that the Kindle 2 can show newspapers, blogs, and more, but my point is the Kindle's less-universal appeal). Plus, netbook sales are increasing dramatically and prices are very affordable (even sometimes less than the Kindle), and some forthcoming tablet netbook will surely be able to emulate the Kindle's book-presenting abilities.

Amazon also seems motivated to sell as many Kindle 2's as possible. I have had an affiliate account with for years, though I have never attempted to sell products. Recently I noticed an email from Amazon announcing that Kindle commissions would be roughly double that of normal everyday sales. To me, this seems to indicate that Amazon's margins on the Kindle are fairly wide, which would obviously be good for investors. Amazon is willing to give up 10% of the cost of the Kindle to anyone who can sell one. (On a similar note, you have likely noted the hyperlinked "Kindles" littered earlier in the article; if you plan on buying a Kindle, please click one of the links above or this one here.)

I anticipate that Amazon will report good top- and bottom-line numbers over the next year as the Kindle should sell strongly; a couple million units are definitely within the realm of possibility. However, I wouldn't buy Amazon's stock on the expectation that they'll eventually sell 100,000,000 Kindles. The product is good, but the market is limited.

I also get another peek into Amazon's operations via my status as a seller on who is engaged in the Fulfillment-by-Amazon program. (I have discussed this program before; basically, a seller pays a fee to use Amazon's warehousing and supply chain - Amazon stores products and ships it when a customer makes a purchase).

I recently received a few emails from them about expanding my product lines within my category (sporting goods). In the most recent email, they were specific enough to suggest about 100 brands that they "want to get into FBA." Listed brands include major sporting icons like Nike, Burton and K2.

Obviously Amazon is urging sellers to expand to further their own interests, and this is a brilliant strategy. Rather than risking their own capital by buying, storing, and selling themselves, Amazon can have independent sellers do that for them and sit back, while collecting a significant chunk of revenue. Amazon charges FBA merchants a percentage of the purchase price (about 10% on average) as well as a base monthly fee, monthly storage fees (based on cubic feet of actual warehouse space used), and three fees per shipment - one base fee, a fee per item, and a fee based on total weight. Increasing FBA sales is the quickest and easiest way for Amazon to increase profits without increasing their own risks whatsoever.

I don't want my tone to suggest that I am unhappy with Amazon's attitude - the FBA program allows me to run my small business (Whacks Wax) from any internet-accessible computer. Without FBA, I would have quit selling ski wax from my bedroom became less attractive when I moved to college. If I had access to any of the brands Amazon is asking for, I'd gladly sell them through Amazon. Every experience I have had with Amazon and FBA thus far has been positive, and they are very smart for attempting to grow that segment of their business.

As a company, Amazon's prospects clearly seem positive as buyers look for deals and sellers try to make money. As a stock, these good prospects seem to be fairly factored in already, so I would neither buy nor sell shares at this point. The purpose of this article was simply to inform the public on my limited yet increased insight of some of the behind-the-scenes workings of the thriving internet retailer, and my observations indicate likely continued success for

Ski Wax
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Monday, February 9, 2009

A Deflationary Mindset

Phil Gramm famously stated in July that "this is a mental recession." He followed up with further quotable remarks and some explanation of his statements (you can read a Washington Times writeup here). Dispite anything else he said, his comment implying an imagined-recession as Americans were paying $4 for gas and fearing pink slips was what grabbed media attention. Though Mr. Gramm was quickly proven wrong by economic data that confirmed the existence of a very real recession, I understood his point: The current dire warnings perpetrated by our president and media that are predicting economic catastrophe are NOT promoting a quick recovery. A consumer is not encouraged to stimulate the economy via purchases, investment, or job creation if he is being force-fed predictions of the end of the world.

Alongside the general discussion about shrinking GDP and worsening employment numbers, many observers have been debating whether the current stimulative policies will result in massive inflation or crippling deflation. Proponents of the first idea claim that the rampant creation of money (TARP, Bailouts, Stimulus Bill, etc.) will result in Zimbabwe-like hyperinflation. Though the government is creating a couple trillion dollars, I personally believe that the huge stock, commodity, housing and derivative market losses will offset this fresh money. I nevertheless strongly disagree with the recent stimulus bill (at least in its most current forms), but for other reasons. I disagree because it is full of pet projects and pork, it will surely increase America's borrowing costs over time, and it will be my taxes that eventually pay off these debts. I'd like to keep much of the money that I plan to make.

Therefore, I think that deflation is the more likely monetary problem, though the condition that I'm calling "a deflationary mindset" is the primary concern.

Capital and capital markets remain relatively frozen. Credit card and loan companies have raised lending standards, lowered lines of credit, and have generally slowed their rates of lending. Leveraged buyouts are non-existent. Many companies still holding mortgage-related assets have decided to let portfolios run-off (whereas their business model pre-meltdown was the continued accumulation of such assets).

Even more bleak and reflective of my "deflationary mindset" principle is the change in consumer purchasing habits. The savings rate has approached 3% of income over the past few (recessionary) quarters, while it averaged below 1% from 2005 through the first quarter of 2008 [graph below]. Most retailers and restaurants (excluding a few value-oriented entities) are suffering huge month-over-month and year-over-year declines in overall and same-store sales.

Frugality is in vogue.

The attitude of both boomers and younger adults has changed from overconsumption to penny-pinching - thus, my "deflationary mindset." Advertisements are now being written to appeal to cost-conscious consumers - the words "in this economy" are uttered annoyingly frequently. Recent CES and various auto shows have been scaled back in comparison to the excess of better years. Corporations are canceling purchases of jets and corporate retreats as the media started to crucify any corporation that is still actually stimulating the economy. Though this frugality is good on an individual level, and was obviously absent from American culture over the past few years, this attitude will prolong the recession as consumers are reluctant to buy their next iPod (AAPL), car (TM, GM, F, NSANY) or computer.

For the vast majority of Americans that will retain employment during this recession, low prices on consumer discretionary purchases will make consuming fun. I don't expect a long Japan-like deflationary period (mainly due to the huge government money injections), so purchase your LCD TV reasonably if you want to snag the best price.

I may one day eat my words, but I am currently not afraid of the Big Bad Recession. Obama can attempt to scare the public into supporting a bloated stimulus bill, but the economic truths are likely not as bleak as he'd have you think. Right now, spending normally (though within your means) is the most patriotic thing you can do for your country.

Ski Wax
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Thursday, February 5, 2009

The Stimulus Bill

I am disgusted with the Obama/Democratic administration's handling of the stimulus bill. Here are a few articles that can articulate why you should be upset too.

Article 1

Article 2

Thankfully, Republicans are standing firm and attempting to trim pork and make this bill a little more acceptable. If you're unhappy, let your Congressman know.

Ski Wax
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Tuesday, February 3, 2009

And He's Out...

Clearly, my disgusted post was what caused Tom Daschle to withdraw his nomination to become the Health and Human Services secretary.

I bet he wishes that Obama wouldn't have nominated him in the first place, so he wouldn't have spent $126,000 paying taxes that should have been paid years ago.

Monday, February 2, 2009

Government Employees Don't Need to Pay Taxes

An ugly fact has surfaced in the past weeks, and no entity of importance seems to care. Congress (thanks to the huge Democratic majority) looked past Timothy Geithner's $26,000 tax error that he conveniently recognized and paid back as he was being examined for Treasury Secretary.

Even worse is Tom Daschle, Obama's pick for Secretary of Health and Human Services. Daschle recently reported income and perks that generated more than $120,000 in tax liabilities, which he quickly and quietly paid. Robery Gibbs, press secretary, downplayed this blunder with a simple "Nobody's perfect."

But most people aren't criminals, and clearly Geithner and Daschle are. Obviously neither politician had any intention of paying taxes on their unreported income/perks unless they ever needed to, like when facing something like this (or an audit). I can guarantee that there are many politicians like them who inaccurately, whether purposely or accidentally, report their incomes and owe the IRS lots of money. There are also many normal Americans that also cheat on their taxes, but policymakers SHOULD be held to higher standards. As the Democrats aim to expand government with this stimulus package, why not hire a couple more people at the IRS to audit audit every Congress(wo)man's return every year?

I wish that Obama-mania would end so that Americans would be as disgusted at this as they should be. Geithner and Daschle certainly appreciate Obama's continued support, but Obama should make an example of them and withdraw his recommendations in light of these issues. If he is honestly aiming to promote change (via government clarity and accountability), allowing these crooks to hold significant offices under him is laughable. Americans need to sober up from their Obamahigh and realize that it's business as usual (if not worse than usual) in Obama's Washington.

Here's to change.

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